We’re entering a new age of Artificial Intelligence.

Firms such as Google, Facebook, Microsoft, Amazon and Apple are investing heavily in AI initiatives by employing big-name academics and PhDs, setting up research laboratories and buying start-ups. Amazon is advertising for more than 50 AI positions in the U.S. and Europe, looking for doctorate-holders in fields like machine learning, information science and statistics. A few weeks ago, Ginni Rometty, the chairman and CEO of IBM, stood on stage in front of a packed room and announced that she was going to make a bold prediction.

“In the future, every decision that mankind makes is going to be informed by a cognitive system like Watson,” she said, “and our lives will be better for it.”

Watson is IBM’s artificial intelligence system. It became famous in 2011 for defeating human opponents on the Jeopardy quiz show.

What is Artificial Intelligence? AI is a broad academic field, encompassing techniques aimed at giving computers the ability to make decisions that a human might, based on data analysis. Predictive text and Siri, the iPhone’s voice-recognition feature, are early manifestations of AI. But AI’s potential has now exploded as the cost of computing power drops and as the ability to collect and process data soars. Big internet companies like Google, Amazon and Facebook sit on huge quantities of information generated by their users. Reams of e-mails; vast piles of search and buying histories; endless images of faces, cars, and almost everything else in the world pile up in their servers. The people who run those firms know that these data contain useful patterns, but the sheer quantity of information is daunting. It is not daunting for machines, though. With the right algorithms, computers can use such annotated data to teach themselves to spot useful patterns, rules and categories within.

Deep Learning. Much of the latest developments in AI concerns ‘Deep Learning’ in which computers teach themselves tasks by crunching large sets of data.

New Age of Artificial Intelligence

StratagemJune 2015

Deep learning aims to more closely mimic the way the brain works by creating neural networks, systems that behave like the networks of neurons in your brain. The results of Deep Learning are impressive. In 2014 Facebook unveiled an algorithm called DeepFace that can recognise specific human faces in images around 97% of the time, even when those faces are partly hidden or poorly lit. That is on a par with what people can do. Microsoft likes to boast that the object-recognition software it has developed for Cortana, a digital personal assistant, can tell its users the difference between a picture of a Pembroke Welsh Corgi and a Cardigan Welsh Corgi, two dog breeds that look almost identical.

And deep learning is not restricted to images. It is a general-purpose pattern-recognition technique, which means, in principle, that any activity which has access to large amounts of data — from running an insurance business to research into genetics — might find it useful. Continued Page 2.

Spot..... .....the difference

Cardigan Welsh Corgi.Pembroke Welsh Corgi.

Deep learning is also being applied to significantly advance robotic learning on tasks that require both machine vision and touch. Roboticists said that the value of the latest AI technology would be in quickly training robots for new tasks and ultimately in developing machines that learn independently.

“It used to take months of careful programming to give a robot the hand-eye coordination necessary to do a task,” said Gary Bradski, a roboticist and computer vision specialist. “This new work enables robots to learn the task by doing it.”

Artificial Intelligence as an investment themeSome companies such as IBM and Microsoft have been investing aggressively to take advantage of this new age of Artificial Intelligence to secure new growth opportunities.

IBM is transforming itself to seize upon the major shifts that are reordering the technology industry and that are opening up vast new applications of information technology. IBM has developed unmatched analytics capabilities through IBM Watson, the world’s first cognitive system. IBM Watson Analytics brings intuitive visualization and predictive analytics to every business user. Apple and IBM are using this technology to develop intuitive business apps for professionals across multiple industries — from flight crews and retailers, to bankers, financial advisors, insurance agents, government caseworkers and law enforcement officers. IBM is also taking its Watson artificial-intelligence technology into

health care in a big way with three initial industry partners in Apple, Johnson & Johnson and Medtronic. The IBM plan is that its Watson technology will be a cloud-based service that taps vast stores of health data and delivers tailored insights to hospitals, physicians, insurers, researchers and potentially even individual patients.

In 2014, Microsoft appointed Satya Nadella as its third CEO. Mr Nadella has pushed Microsoft forward with its transformation for the mobile-first, cloud-first world. By utilising Deep Learning AI, Microsoft has developed a range of transformative products that will be released in 2015. Microsoft Power BI will analyse and gain insights from complex data, through rich visualizations and natural language interaction. Office Delve uses artificial intelligence to help people discover information in new ways by surfacing the full depth of the knowledge inside of an organization’s computer systems. Skype Translate will enable people to speak different languages, to hold fluent, cross-language conversations filled with all the nuances and subtleties that you have in any conversation and automatically translate these conversations. Cortana, a personal digital assistant which uses natural language interaction and deep knowledge of the user to automatically accomplish everyday tasks like scheduling an appointment or tracking a flight and for example, advising you on the right time to leave a meeting because it knows about the traffic and your flight. Cortana will be licenced to Apple and Google.

What does having a succession plan in place mean?

The business is not dependent on the day-to-day physical presence of the owner for its continued profitable growth. In practical terms, this means that the owner has time to spend with family and friends or time to start another business.

If the owner/manager dies or becomes disabled, family and employees are not left unprotected. The business will continue in an orderly fashion. The necessary financial and legal elements have been secured with the help of qualified professionals: accountants, lawyers and financial planners. This includes compensation and share structures, insurance, a will, owner exit strategy and tax and retirement planning.

If the owner chooses to sell the business, the pool of prospective purchasers can include investors who don’t intend to manage the business. A larger pool of potential purchasers means a higher price.

At the point the owner/manager wants to retire, the business does not have to be sold. The ‘owner/manager’ can simply transition to being the ‘owner’ — because management is in place.

A ‘good’ business is a business that generates top returns, allows the owner to work on the business instead of in the business, and employs motivated, knowledgeable people.

A Checklist for Business Owners

Planning Ahead• Define visions, goals, and objectives (short and long-term)• Conduct a SWOT analysis • Establish a team of professional advisors (e.g. financial

advisor, accountant, lawyer, etc.)• Review suitability of business structure moving forward

(e.g. sole trader, partnership, trust; corporation, etc.)• Perform a salary/dividend mix analysis

Retirement• Determine your timeline to retirement• Consider how you plan to finance your retirement• Define your expectations for retirement income

Exit Strategy• Think about a succession plan• Decide if, after retirement/death, your business will remain

in the family or be sold• Plan who will receive an equitable share of the business in

the case of retirement/death• Consider ‘Business Interruption Insurance’• Analyse how much life insurance is needed and who

should purchase it

Succession Plan – a good business ‘must have’Own your own business? You may not be thinking of handing over the reins any time soon, but what if it were forced upon you? What if you received a buy-out offer that was simply too good to refuse, or what if you were to get seriously ill? Like insurance and a will, a succession plan is not something you put in place when you ‘need’ it — a good business has it in place all along.

Dividends: does size matter? By Alexandra Cain, journalist

It’s easy for investors’ heads to be turned by businesses that announce an increase to their dividend. But the reason behind why the company has decided to return a greater proportion of its profits to shareholders is often more important than the dividend itself. While it’s prudent to look for profitable businesses in which to invest, it’s also important to remember that sometimes companies will retain earnings so as to invest in initiatives that will help the business grow.

The idea is to understand why directors have decided to retain or return earnings, rather than pay too much attention to the headline dividend number.

In a low interest rate environment, investors have been extremely focused on stocks that pay healthy dividends. But a high dividend can mean a number of things about a business. It’s worth understanding what’s behind a company’s dividend to get a full picture of its performance and financial health.

Companies have three options about how they use their profits:

1. They can reinvest them in the business. This usually means the entity has opportunities to grow its operations and is using its profits to pursue this.

2. They can give it back to investors in the form of dividends or special dividends. If a company issues a special dividend it usually indicates any increase in earnings was a one-off event. For instance, companies will often pay out a special dividend if they have sold a business and wish to return the proceeds of the sale to investors.

3. They can use it in a share buy back. This reduces the number of shares on issue and makes the shares left on the market more valuable. The company’s share price generally increases after a share buyback.

Importantly, investors should look behind the numbers if a company issues a one-off high dividend. Although a high dividend can indicate a company is performing over and above market expectations, consistency over time in the approach directors take to paying dividends is something investors should value highly.

The reason is that although it’s generally positive when a company is making sufficient revenue to be able to give that back to investors, in some instances it’s not always a good thing. An increase in dividend payments can suggest a company no longer feels it has growth potential.

Of course, investors do choose stocks because of their growth potential. But often, people want companies to pay out a dividend because they have invested in the business to access a share in its profits.

Examples of businesses in this later category include the major banks, some property trusts and Telstra. Their historic dividend yields (the dividend expressed as a percentage of the share price*) are as follows:

• NAB 6.0% • Telstra 4.9% • ANZ 5.2%

• Westpac 5.7% • CBA 5.0%

Investors are attracted to businesses that lift their dividend in a measured way because it’s a signal the business is doing well. For instance, IAG recently reported an increase in its dividend as well as an improvement in earnings per share. The share price rose when this news was released, which indicates the market is confident in the outlook for this stock. Suncorp also reported a special dividend recently and its share price also improved.

However, the market won’t always reward a company that raises its dividend, which is why it’s important to understand the business’ underlying performance, rather than be too focused on the pay out. JB Hi-Fi lifted its dividend when it reported its most recent financial results, but at the same time announced a flatter sales outlook. This prompted concerns among investors, and the share price dropped.

If your purpose is to invest for the long-term, investing in businesses that have consistently issued relatively high dividends can be a sound strategy because you can have a level of comfort the company will likely pay out a proportion of its earnings in the future. But you do need to have a level of confidence in the underlying strength of the earnings, or you may be surprised down the track if the dividend drops.

The key message for investors is to gather as much information as possible about a company and its history paying dividends to understand the underlying drivers behind the entity’s profitability. Be cautious if a company lowers its dividend because it could be a sign that profits are falling (although it could also mean the business wants to invest for growth). Also, remember that an increase in a company’s dividend is not always good news.

Above all, look for businesses with sustainable earnings, whose directors are transparent about decisions regarding dividends to build a quality share portfolio.

* As at 18 June 2015.

And these stats don’t include de facto relationship breakdowns. The increasing age at which people are separating means they are more likely to have accrued enough assets to make it worthwhile for them to have established a self managed super fund (SMSF). Indeed, the ATO’s figures show 39,514 SMSFs were set up in 2013, with the total number of SMSFs now numbering more than half a million funds. This makes it increasingly likely that an SMSF will be impacted by the asset split which generally evolves from a couple’s separation. So how are the assets in an SMSF treated in the event the members are separating and what are the tax

implications?

Working out a property settlement upon separation is rarely easy. When it comes to deciding how the assets in a SMSF should be divided, there are special considerations, given that spouses who are separating may be members of the same SMSF and also trustees of the fund. Here we look at how the assets in the fund can be divided, what happens to the fund itself, and any tax implications as a result of transferring assets out of the fund or winding it up.

As a general principle, when a couple is separating, superannuation entitlements (including those in an SMSF) will be considered to be part of the group of assets that may be divided. As with other assets when a separating couple goes through a property settlement, the way assets are divided can be determined in two ways.

First a separating couple may agree how their superannuation interests are to be split. A ‘superannuation splitting agreement’ must follow strict legal formalities, including that both parties have received independent legal advice about the agreement. This is the path usually taken when the separation is relatively amicable.

The second approach is to have the Family Court decide how the property will be split following separation. If this is the case, then the court will generally need access to all the documents that relate to the fund, for instance the trust deed and any loan documents in the event the fund or its associated structures has borrowed money to invest in property.

Options for dividing the assets in the SMSF

There are two main options that can be taken when dividing the couple’s superannuation interests in their SMSF.

Option 1. After it has been agreed that a party’s superannuation interest is to be split, either party may wish to exit the SMSF and transfer their superannuation interests

Self managed super funds and divorce By Alexandra Cain, journalist

According to the Australian Bureau of Statistics, the average age at which Australian couples are divorcing is increasing, with the median age for divorce for a male being 44.8 years. For women this figure is 42.2 years.

(that is, both their pre-existing entitlements and those awarded (if any) as part of the property settlement) out of the fund. This could be to a new SMSF or another type of complying super fund. Capital gains tax may be incurred if the SMSF sells down its assets to generate cash for the transfer, but if assets are transferred in kind (that is, ‘in specie’) a capital gains tax concession may apply.

Alternatively, if the exiting party has reached an age at which he or she can access their superannuation interests, and has met other requirements (for example, they have retired), they may apply to receive payment of their benefits directly, rather than transferring to another super fund.

Under option 1, the exiting party would cease to be a member and trustee of the fund. The remaining member may retain his or her interest in the SMSF and continue to run the SMSF. It might also be possible to add other assets previously held outside the super environment to the fund.

However, unless the SMSF has a corporate trustee, the remaining member may need to appoint a corporate trustee or find another party who is willing to become an individual trustee, in which case the SMSF’s trust deed and other governing documentation may need to be amended to reflect the new situation.

Option 2. In the second option, the SMSF would be wound up after the existing members’ superannuation interests are adjusted according to the property settlement and all benefits are transferred to another SMSF, complying super fund or paid directly to the member. In this event, the trustees will have to go through the usual processes for winding up the fund, including filing a final tax return.

The tax implications of winding up the fund will vary according to the specific situation. However, capital gains tax liabilities may be deferred if the assets are transferred in specie to another SMSF or complying super fund. But it’s important to remember that even though the tax liabilities might be deferred when the assets are transferred out of the SMSF, they still exist. This is a consideration that should be made as part of the property settlement.

Whichever route is decided, it’s essential to seek advice from experts such as lawyers, accountants and financial planners who have had experience dealing with SMSFs that form part of a property settlement to ensure that both parties achieve an equitable resolution taking into account the potential tax liabilities.

Intralink Wealth Management Pty Ltd AFSL 330737 ABN 76 117 065 335Level 14 470 Collins Street Melbourne Victoria 3000Phone (03) 9629 1100 info@intralink.com.au www.intralink.com.au